Understanding Contract Formality Requirements in Vietnam: Risks and Legal Remedies

Understand contract invalidity due to formality violations in Vietnam, key legal risks for investors, and how Article 129 of the Civil Code 2015 offers remedies for partially performed contracts.

Contracts are fundamental tools for structuring civil and commercial relationships in Vietnam, offering parties legal assurance to enforce their rights and obligations. Yet, despite their centrality, contracts may be declared invalid when they fail to meet mandatory formality requirements.

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Vietnam’s Civil Code 2015 (Law No. 91/2015/QH13) sets out principles governing contract invalidity, balancing strict legal compliance with pragmatic remedies for partially performed agreements.

For global investors and businesses operating in Vietnam, understanding how and why contracts might be invalidated, and how they might still be safeguarded, is crucial.

Legal framework and core principles

Under Article 117 of the Civil Code 2015, a contract must satisfy four basic conditions to be valid: voluntary agreement, competent parties, lawful purpose and content, and compliance with required formalities. Formality, addressed further in Article 119, allows contracts to be established orally, in writing, or through conduct, unless the law specifically demands a written document, notarization, authentication, or registration. Critical contracts such as real estate sales, construction agreements, and land use transfers must comply with specific formalities under sector-specific laws.

If a formality requirement is not fulfilled, a contract may be deemed invalid under Clause 1, Article 407 of the Civil Code. Provisions from Article 123 to Article 133 guide how such invalidity is determined. However, Vietnam’s legal regime, while strict, is not inflexible. Notably, Article 129 provides an important safeguard for substantially performed contracts, a key protection for businesses engaging in complex, multi-stage transactions.

Cases where formality violations trigger contract invalidity

In Vietnam, certain contracts must meet explicit formal conditions to be legally enforceable:

• Land-related contracts, such as capital contribution using land use rights, must be in writing and notarized or authenticated (Article 167(3), Land Law);
• Housing mortgage agreements must be notarized or authenticated, with effectiveness from the notarization date (Article 122(1), Housing Law);
• Construction contracts must contain extensive details, including applicable laws, payment terms, dispute resolution, and force majeure clauses (Article 141, Construction Law); and
• Real estate sales or leases must specify party information, asset descriptions, prices, warranties, and dispute resolution mechanisms (Article 18, Real Estate Business Law).

Failure to comply with these formalities not only affects enforceability but could render the contract null and void unless remedied through substantial performance.

Article 129: Safeguarding contracts despite formal defects

Vietnam’s Civil Code 2015 abandoned the old approach under the 2005 Code, which allowed courts to grant time for correcting formal defects. Instead, Article 129 introduces a safeguard based on the performance of obligations. If at least two-thirds of a contract’s obligations have been performed, courts can recognize the contract’s validity despite formal defects, eliminating the need for subsequent notarization or authentication.

The calculation of “two-thirds” remains complex. While clear in sales or loan agreements where deliverables are divisible, difficulties arise in contracts with bundled obligations, continuous services, or open-ended terms. In principle, courts prefer a strict interpretation focused on principal obligations (for example, delivery and payment in a sales contract, loan disbursement in a finance agreement).

However, businesses should be cautious: even if internal agreements predefine how two-thirds is calculated, courts retain final authority and may not honor contractual definitions if they deviate from statutory intent.

Consequences when a contract is declared invalid

If a contract is invalid due to formality violations and does not qualify for Article 129 protection, the consequences follow Article 131 of the Civil Code:

• Parties must restore the original state and return the received assets;
• Where physical return is impossible, equivalent monetary value must be refunded;
• Fault-based compensation is required when damages result from one party’s misconduct (for example, fraud, coercion); and
• Parties acting in good faith may retain yields and income generated during contract performance.

These rules aim to fairly balance the protection of transaction integrity with the mitigation of economic harm.

Practical implications for foreign investors

Foreign businesses entering the Vietnamese market often engage in sectors—real estate, construction, energy—where strict formality requirements apply. In such cases, verifying formal compliance from the outset is vital. Even minor oversights, like omitting necessary details in construction contracts or failing to notarize land use contracts, can expose deals to invalidity risks.

If formal defects occur, parties should thoroughly document performance milestones to substantiate any request for Article 129 protection. Nonetheless, businesses must be aware that the two-thirds rule does not guarantee protection, especially when obligations are intertwined or performance remains contested.

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In drafting contracts, businesses should:

• Clearly structure obligations to allow easier performance measurement;
• Consider separate agreements for divisible obligations; and
• Maintain detailed records evidencing contract execution.

Ultimately, legal due diligence, careful contract drafting, and proactive compliance monitoring can mitigate risks related to contract invalidity due to formality violations.

Read more: Setting Up a Business in Vietnam

Overview of critical contracts

Takeaway

Vietnam’s contract law reflects an increasingly pragmatic approach: while strict adherence to formalities remains crucial, the law provides reasonable flexibility through Article 129 to safeguard commercial expectations when contracts are substantially performed. Global businesses must tread carefully by respecting Vietnam’s formal requirements while preparing contingencies for safeguarding their interests if procedural lapses arise.

Understanding the intricacies of contract invalidity—and the legal mechanisms available to navigate around them, is indispensable for companies investing and operating in Vietnam’s dynamic legal environment.

Read more: Understanding Franchise Agreements in Vietnam

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